Looser Bank Buffer Rules No Panacea For Europe, U.S.

A decision by global
regulators to give banks more time and flexibility to build cash
reserves will not boost lending or speed recovery in
debt-strapped Europe, where firms and households have scant
appetite to borrow.

A decision by global
regulators to give banks more time and flexibility to build cash
reserves will not boost lending or speed recovery in
debt-strapped Europe, where firms and households have scant
appetite to borrow.

In the United States, where the economy appears to be
rebounding, the rules could loosen credit a bit and could help
revive mortgage securitization. But any boost to the U.S.
housing market would be mostly psychological.

On Sunday, the Basel Committee gave banks four more years to
build a backstop against future financial shocks and allowed a
wider range of assets, including stocks, residential
mortgage-backed securities and lower-rated corporate bonds.

An earlier draft of these global liquidity rules, designed
to help prevent future banking crises, was more stringent. The
more relaxed regime means lenders will in theory have more scope
to use some reserves to help struggling economies grow.

The changes "will make it easier in the future to lend to
companies than the originally planned rules did," said Bank
Austria, the UniCredit unit that is the biggest lender
to Europe's developing economies.

But for the euro zone economy, which the European Central
Bank suggests will shrink 0.3 percent this year, easing banks'
ability to lend cannot compensate for the dearth of demand for
loans among wary consumers and businesses.

"Overall it is positive, but I don't think it is enough to
turn around the whole situation in the short-run," Berenberg
Bank economist Christian Schulz said of the Basel rules change.

He said the effect on the 17 countries that use the euro
would amount to just 0.1-0.2 percentage points of annual output.

The ECB has struggled to boost lending. It channelled more
than 1 trillion euros of cheap, three-year loans to banks early
last year, saying this helped avert a major credit crunch.

But demand remains the real problem.

A recent ECB survey showed euro zone banks made it harder
for firms to borrow in the third quarter and expected to toughen
loan requirements further even though their own funding woes had
eased.

By far the most important reason banks cited for tightening
credit standards for firms was the economic outlook. Household
lending was hurt by worries about the housing market's health.